by John-Clark Levin & Graham Penrose, TMG Corporate Services (Intelography), January.04, 2015MADRID –- The past year has seen a bold new round of provocations in the South China Sea, where the People’s Republic of China is trying to expand its regional hegemony. The central issue is territorial. According to the United Nations Convention on the Law of the Sea, nations can claim exclusive economic rights in waters up to 200 nautical miles off their coastline. Where these zones would overlap, claims generally go to the nearest state.

According to these principles, most of the economically vital South China Sea is shared between Vietnam, China, Taiwan, Malaysia, Brunei, and the Philippines. But China claims the Spratly islands, a rocky and unpopulated archipelago deep inside the Philippines’ exclusive economic zone (EEZ)—and the Paracel islands, a group of reefs and islands close to Vietnam.

According to Beijing, its EEZ projects from both island chains, which puts almost the entire South China Sea in Chinese hands. At stake is strategic control of sea lanes that carry an estimated$5.3 trillion in annual trade, highly lucrative fishing stocks, and promising oil and gas resources. Although most of the South China Sea’s proven reserves lie in undisputed areas, the U.S. Geological Survey estimatesthat about 2.5 billion barrels of oil and 25.5 trillion cubic feet of natural gas may be available around the Spratlys.

In addition to these economic incentives, the dispute is also motivated by China’s aspirations to assert itself as the preeminent power in Asia. China’s latest tactics have serious security consequences for everyone with an interest in the South China Sea. Not content to pursue its dispute through lengthy lawsuits and international arbitration, Beijing is attempting to gain an advantage by changing the “facts on the ground.”

That is, by gaining effective control over disputed areas, China can strengthen its legal position in the sense of the old saying “possession is nine tenths of the law.” If it can actively exploit the disputed zones and convince world markets to accept its claims, other nations’ legal objections will be largely moot. China is working to establish such control by a combination of unilateral resource grabs and confrontational moves against rival militaries in the region.

On January 1 of last year, China institutednew rules requiring foreign fishing vessels to obtain permits in order to fish in much of the South China Sea. The move drew criticism from Vietnam, the Philippines, and the United States, but none were in a position to force the Chinese to back down. In an excellent analysisthe following month, analyst Robert Haddick called out Beijing for pursuing a policy of “salami-slicing”. The metaphor contextualizes the new fishing restrictions as part of a larger pattern of incremental moves that included the sudden establishmentof a Chinese city on Woody Island in the Paracels in July 2012, and the declaration of an Air Defense Identification Zone over the East China Sea in November 2013. In 2014, Chinese survey vessels have reportedly been operatingdiscreetly in the Philippines’ EEZ, likely to gain a better sense of the petroleum resources that might be available there. Beijing was clearly betting that no single step would be enough for its neighbors to risk armed conflict—but that collectively, they would achieve China’s goal of controlling the South China Sea. In the months that followed, the salami-slicing continued. In March 2014, Chinese Coast Guard vessels turned backa pair of ships sent by Manila to reprovision Filipino troops stationed on a disputed outpost in the Spratlys. Then in May, China set upa billion-dollar oil rig unannounced in disputed waters off Vietnam, surrounded by a flotilla of protective ships from the Chinese Maritime Police Bureau.

Vietnamese vessels went out to meet them, leading to several days of vigorous clashes between the two sides, using water cannons and ramming actions. In June, Hanoi released videoof a Chinese vessel ramming a Vietnamese fishing boat that soon sank. China appears not to have suffered any comparable losses. In July, China unilaterally withdrewthe rig— stating that it had completed its exploratory mission — but Vietnam would have been in no position to prevent it from staying.Then, in August, a Chinese fighter interceptedan American reconnaissance plane over the South China Sea, performing abrupt manoeuvres perilously close to the U.S. aircraft. This risked a repeat of the 2001 incidentoff Hainan Island where such a mid-air collision led to a diplomatic crisis after the crew of the crippled American plane was interned on Chinese soil for 11 days. Instead of sober reflection, Chinese Rear Admiral Zhang Zhaozhong exhortedhis pilots: “A knife at the throat is the only deterrence. From now on, we must fly even closer to U.S. surveillance aircraft”.This combination of brinksmanship and salami-slicing by incremental and escalating actions is dangerous indeed. The worst-case scenario, of course, is a full-on armed confrontation—but both the Chinese and their opponents realize that war would be catastrophic. Much more likely is a steady drumbeat of small grabs that pose risk to those wishing to do business in the South China Sea. In 2012, China National Offshore Oil Corp invitedforeign companies to bid on nine oil exploration blocks within Vietnam’s internationally-recognized EEZ, apparently including some areas which had already been leased out by Vietnam. While major firms like Exxon Mobil have so far avoided wading into the disputed zones, and will likely continue to do so, smaller players with less to lose have expressed interest. In comparison, around the same time, the Philippines invited bidding on two oil blocks in disputed territory, but received rather little interest.

Going forward, how oil and gas companies invest their money will send a strong signal about who is winning the struggle for the South China Sea. Those who lease disputed blocks from Vietnam or the Philippines are betting that China will ultimately bow to pressure by the United States and its allies in the region. Those who lease from China are betting that Beijing’s grabs will prove irreversible.Whatever firms bet, there will be more provocations. Survey ships and drilling platforms can expect to be harassed by the other side, and company personnel and equipment may be endangered by the struggle going on around them. Some firms will likely hire private security vessels for protection. Although such forces would be no match for Chinese warships in an armed confrontation, their presence would make it riskier and more difficult to drive away client assets. Armed guards aboard platforms could be employed as an additional deterrent. This poses serious risks, though—untrained private security could instigate a clash by mistake, and even a small spark in the South China Sea has the potential to escalate to international conflict. Further, the 100 Series Rules for the Use of Force, which were developed in 2013 to provide broad guidance for private maritime security companies, are intended for actions against pirates, and would not provide sound guidance for potential standoffs with state actors. For companies wishing to hire security, then, retaining only the most experienced and professional private maritime security companies must be a priority.

About John-Clark Levin is an author and maritime security expert, currently pursuing his research at Harvard University. He has written for publications such as the Wall Street Journal, Southern Economic Journal, Pacific Maritime Magazine, and War on the Rocks. He has lectured on the subject of private maritime security at institutions such as Johns Hopkins University, Georgetown University, the Center for Security Policy, and the U.S. Naval War College.